Chiu Kin Sang v. Cheng Muk Chun t/a Sun Fat Restaurant and Cheng Wing Kwok (3rd Party)

HCA003467/1997

HCA 3467/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. A3467 OF 1997

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Coram : Deputy Judge W. Wong in Court

Dates of Hearing : 15, 16 and 170 July 1998

Date of Delivery of Judgment : 29 July 1998

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J U D G M E N T

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1. The Plaintiff is the holder of 3 bearer cheques nos. 130804, 130805 & 130806 drawn by the Defendant on Yien Yieh Commercial Bank Ltd in the sum of $140,000 each. These 3 cheques were presented for payment and were dishonoured. He now claims the sum of $420,000 being the total amount of the 3 dishonoured cheques.

2. The defence is that those 3 cheques were among a series of 20 cheques nos. 130801 to 130820 drawn by the Defendant and delivered to the 3rd party (Defendant's elder brother) consideration in respect of those 20 cheques wholly failed. He claimed against the Plaintiff for an injunction restraining the Plaintiff whether by himself, his servants or agents or otherwise howsoever from negotiating any or all of the rest of 17 cheques and asked for delivering up of those 17 cheques to the Defendant.

3. By a 3rd party Notice, the Defendant also claim against the 3rd party

1) for an indemnity in respect of the Plaintiff's claim and costs,

2) $280,000 being the amount of 2 cheques nos. 130801 & 130802 in that series cashed by the 3rd party and

3) an injunction to restrain the 3rd party, his servants or agents or otherwise howsoever from negotiating the rest of those 20 cheques and

4) delivering up of the cheques which had not been presented for payment.

4. The Plaintiff's and 3rd party's case is that sometime in April 1996 the Defendant approached the 3rd party for a loan of $3 million to decorate his Sun Fat Restaurant. As he did not have sufficient money he turned to the Plaintiff who on two occasions lent the Defendant $1.2 million on each occasion. According to Plaintiff he regarded it as a loan to Defendant and the 3rd party acted as the guarantor. The loan was originally intended to be for a period of 2 months. As the Defendant was unable to pay after 2 months he drew 20 cheques in the sum of $140,000 each by way of repayment.

5. The Defendant's version is entirely different. His case is that the 20 cheques were given to the 3rd party as payment for establishing a limited company pursuant to the dying wish of their mother. It was his mother's wish that the 3rd party, the Defendant and their 6th brother (Cheng Wing Chun) should form a limited company and make use of profits of the company to set up an ancestral home in their native place in Chiu Chau. So the three brothers had discussions and agreed each would contribute $2 million to form the company. As the Defendant was heavily committed financially in his business and in property he did not have the money and hence issued those 20 cheques in the sum of $140,000 each payable as to cheques no. 130801 to 130810 on the 10th of each month commencing on 10th August 1996 and as to the other 10 cheques on the 16th of each subsequent months. After 2 months as there was no sign that the 3rd party was going to establish the company he countermanded payment of those cheques.

6. Counsel for both the Plaintiff and 3rd party and the counsel for the Defendant agreed that there is only one issue i.e. a finding of fact as to which version was more plausible.

Evidence of the Plaintiff and the 3rd party

7. The Plaintiff said that he is a very good friend of the 3rd party who had helped him many years ago when he was in financial difficulty.

8. Sometime by the end of April 1996 the 3rd party asked for a loan because his brother wanted to decorate his restaurant. As he wanted to return the favour he discussed with his partner of Nan Fang ( a Zhu Hai factory in which he had 20% interest) Wang Suk Man who managed to raise $2.4 million. The $2.4 million were given to him on two separate occasions. The 1st occasion was on or about 6th May 1996 when he went to Macau to fetch the money from an employee of Nan Fang, Wong Yat Kwan in Lung Kee. He said Wong brought along the money in $1,000 notes in a brown envelope. On the following morning he took the money to the 3rd party's restaurant in Whampoa placed it on the table and left. He saw both the 3rd party and Defendant there on that occasion.

9. The 2nd occasion was on 14th May 1996. In the morning he went to get the money in Macau and returned to Hong Kong in the afternoon and he handed over the money in the same manner and in the same place. He said the 3rd party indicated that the money would be returned in 2 months' time. After 2 months he asked for repayment but he was told by the 3rd party that the Defendant had financial difficulty and would give him $400,000 as interests and repay by 20 months.

10. It was by the end of July or early August 1996 that he was given those 20 cheques. He gave the 3rd party the first cheque of that series so that the 3rd party could give him $140,000 as he needed cash for his business at the beginning of the month. The 2nd and 3rd cheques were given to the 3rd party who gave him the cash in a similar manner.

11. By the end of September 1996 or early October the 3rd party asked him to deposit the cheques himself. The cheque was countermanded. He had a discussion with the 3rd party who asked him to deposit 1 or 2 more cheques and then he was asked by 3rd party to sue.

12. In support of his version, Wong Yat Kwan, an accountant of Nan Fang, was called. Wong said that on two occasions in May 1996 he met Plaintiff in Macau. He went on 6th & 14th May 1996 on a Trade Permit. He gave Plaintiff $1.2 million on each occasion. Plaintiff issued him receipts. He made entries in the company's books. The Plaintiff ceased to be a partner sometime in 1997 as he owed the company over $1.9 million and did not repay so they did not trust him.

13. The 3rd party Cheng Wing Kwok said that in April 1996 the Defendant asked for $3 million because he expanded his business, bought a house in Sai Kung for $8-9 million, $2 million to decorate his Fa Yuen Street restaurant and wanted to acquire the adjacent shop premises and he rented the premises adjourning his restaurant in Cameron Road and had to decorate the newly acquired premises.

14. He could not help as the factory in which he operated his canteen business had move to China and business was not good and he had to redecorate his other canteen.

15. He asked the Plaintiff to help. Chiu discussed with his partner in China, raised the amount and took it back. Plaintiff did not ask for interests or I.O.U.

16. The Plaintiff brought the money back on the 7th or 8th May 1996. He carried them in a plastic bag to the crokloft of his restaurant in Whampoa. Plaintiff gave the money to the 3rd party who in turn gave them to the Defendant who counted.

17. The 2nd occasion was on 14th or 15th May and it was done in the same manner in the same place.

18. His mother suffered a fall on 16th May 1996 and it was not until the 20th that he learnt about it and so he hurried back to China immediately.

19. His mother passed away on 18th June 1996. There was no suggestion or meeting to form a company. His mother did not suggest the setting up of an ancestral home.

20. After the loan was given to the Defendant he waited for 2 months and then the Plaintiff chased him for payment so he pressed Defendant for repayment but Defendant said he could not raise that amount as he had been in and out of China and was unable to sell his two concessionary grant in Sai Kung. So Defendant suggested repayment by instalment of $140,000 each and would give interests.

21. He discussed the matter with the Plaintiff who agreed to such arrangement after two to three discussions. So in Defendant's Fa Yuen Street restaurant Defendant took out a brand new cheque book and issued the 20 cheques. He wrote out all the 20 cheques and asked Defendant to sign. He gave the Plaintiff all the cheques. Plaintiff in turn asked him to get the money and gave him the 1st cheque as he needed cash at the beginning of the month. The 2nd cheque was given to him by the Plaintiff drawn in a similar manner. So was the 3rd cheque.

22. He took the cheques given to him by the Plaintiff and presented them for payment. The 1st and 2nd cheques were honoured but the 3rd cheque was dishonoured as it was countermanded. So he told the Plaintiff about it and asked him to present the other cheques for payment on their respective due dates but were dishonoured.

DEFENDANT'S EVIDENCE

23. The Defendant is the younger brother of the 3rd party. He did not borrow $2.4 million or any sum from the Plaintiff. He did not know the Plaintiff.

24. He said that in May 1996 he was in his native place most of the time because his mother was very sick and he had to look after her. His permit shows that he was in China from 8th to 13th May, 15th to 18th May and 21st to 29th May. The 3rd party and their younger brother also spent most of the time in the native place in May and June because of their sick mother. There was no occasion when they were in Hong Kong together in May.

25. It was about a week after her mother's fall in May 1996 that her mother made known to them that it was her wish that they (the brothers) should set up a company and use the profits to set up an ancestral home in their native place and help their relatives. So the brothers had discussions about setting up of the company and eventually agreed that each should put up a sum of $2 million for the establishment of the company.

26. At that time he was short of money because he had spent a lot of money in expanding his Sun Fat Restaurant and about $1/2 million for his mother's medical and funeral expenses. Since he had financial difficulty the 3rd party suggested he (3rd party) would pay for him first and he would pay the 3rd party by instalments by issuing 20 cheques in the sum of $140,000 each totalling $2.8 million. He gave these 20 cheques to the 3rd party at Lai Tung Restaurant and the 6th brother Cheng Wing Chun was present.

27. Since the company was never set up he countermanded payment of the cheques. The first 2 cheques had been presented for payment but the 3rd party had not repaid him $280,000 being the amount of the first 2 cheques.

28. Cheng Wing Chun the 6th younger brother of the 3rd party and the Defendant gave evidence in support of the Defendant. He said he was present when the 20 cheques were handed over by the Defendant to the 3rd party. They were for the setting up of a limited company because before their mother passed away she made it known that it was her wish to set up an ancestral home and she was afraid that should anything happen in China no one would look after that matter, so they (the 3 brothers) should form a company make use of the profit and send the profits back to China for that purpose.

29. They had discussions and agreed that each should contribute $2 million. He had not paid that amount because he had no liquidity problem and was ready and willing to pay if and when required. He was present when Defendant told the 3rd party that he did not have sufficient cash.

ASSESSMENT OF EVIDENCE

30. I do not find on balance that the Plaintiff had made the loan to the Defendant as alleged for the following reasons: -

1) In the affirmations in respect of the injunction application, the pleading and the witness statements, the Plaintiff and 3rd party alleged the loan was made in June. It was only at the trial that counsel applied to amend the dates to May. The explanation given was that they had already informed their solicitors but was told that they could not amend. I do not accept such lame excuse.

2) Wong Yat Kwan said that he went to Macau on 6th May & 14th May to hand the money to the Plaintiff and he never said that the Plaintiff was in Zhu Hai on those dates. It is inconceivable why the Plaintiff had to go to Zhu Hai if Wong were to hand him the money in Macau.

3) The Plaintiff's entry permit to China showed that he entered Zhu Hai on 6th and left China on 7th. Further he entered China through Kung Bei 拱北 (the normal place of entry to Zhu Hai at the border with Macau) on 14th and left China on 15th and the place of exit was in Lo Wu (羅湖).

4) According to the evidence of Wong Yat Kwan he said that "Chiu said he wanted $2.4 million". This is not the amount 3rd party said Defendant wanted. According to the 3rd party the Defendant wanted $3 million for decoration purposes.

5) Both Wong and Plaintiff said that because the Plaintiff owed Nan Fang money he ceased to be a partner in 1997. The Plaintiff said he owed the Nan Fang over $1.9 million. There was no evidence that he used the amount of the first 3 sums of $140,000 each to repay Nan Fang. The Plaintiff's evidence is that he asked the 3rd party for the money as he had cash flow problem for his business at the beginning of the month. It is strange and illogical that his share of profits in Nan Fang was not used to set off his debt (if any). As a businessman it would also be strange for the Plaintiff not to ask for accounts if there was a dissolution of partnership.

31. The evidence of the Plaintiff and the 3rd party concerning the loan is therefore highly improbable.

32. On the other hand the version given by the Defendant and Cheng Wing Chun was more probable. There is no doubt that all the 3 brothers were filial and had great respect for their mother. It is more likely that they treat their mother's wish as a command and would not just pay lip service to what was said by their mother. I find that they would put aside their differences ( in particular the animosity between the 3rd party and Cheng Wing Chun because of their litigations) to try to establish a company according to the wish of their mother.

33. The cheques in question were countermanded by the Defendant. They were not dishonoured because of insufficient fund. There is no suggestion that the Defendant was devoided of funds to honour those cheques. Why then should Defendant countermand those cheques? He is a businessman. Having dishonoured cheques could seriously damage or impair his reputation as far as his business is concerned. I do not think that he would be swayed or persuaded by Cheng Wing Chun not to honour those cheques had he really obtained the loan from the Plaintiff. If there was any animosity it was just between the 3rd party and Cheng Wing Chun, it has nothing to do with the Defendant. I do not think that the countermand of the cheques were at the instigation of Cheng Wing Chun as the 3rd party suggested.

34. Having analysed the evidence in detail on balance I accept the explanation of the Defendant. In the premises, I make the following order: -

1) The claim by the Plaintiff is dismissed

2) An order that either the Plaintiff or the 3rd party do deliver up to the Defendant the cheques of the Defendant, and

3) Judgment for the Defendant against the 3rd party in the sum of $280,000 with interests at 10% p.a. from date of writ to judgment.

4) (I) Costs of the claim &counterclaim to the Defendant

(ii) Costs of the 3rd party proceedings to the Defendant.

(Wesley Wong)

Deputy Judge of the High Court

Representation:

Mr. Alexander Wong instructed by Messrs. David Ravenscroft & Co. for the Plaintiff and 3rd party.

Mr. Benjamin Chain instructed by Messrs. Josip Ma & Co. for the Defendant.